Optimism for Amsterdam

As the broadcast technology industry converges on Amsterdam
this week for IBC2012, vendors of equipment, software and services are both
encouraged by the year's record sales and bracing for longer-term changes that
have touched off a wave of merger and acquisition activity among the leading
providers.

Executives at Utah Scientific and Ross Video are among those
reporting record revenue so far this year. At Ross, following a 47% revenue
hike in 2011, "our goal had been to just hang onto the 2011 number, but we have
grown another 25% this year," says CEO David Ross, who adds that the company is
now selling its Carbonite switchers at a rate of about 700 a year. "We weren't
expecting that, and I'm looking forward at the business with a certain degree
of optimism."

At the same time, the vendor community continues to be
buffeted by media companies' demand for products to deliver more content to
more devices and to streamline workfl ows. Media asset management systems, TV
Everywhere solutions, automation systems, channelin- a-box products,
distributed production systems and cloud-based solutions have been particularly
hot items in the run-up to IBC.

"The Olympics are a great example of the rapid
transformation that this industry is making," says Gary Greenfield,
president/CEO of Avid, which worked extensively with NBCU as the programmer
provided a record level of Olympics coverage to multiple platforms. "It isn't
just about the TV screen on the wall, but the full media experience that the
industry is responding to....Everyone is a multicaster today."

But those trends have also required broadcast equipment
manufacturers to adapt to a world of rapidly plunging prices for cameras,
routers, servers and other technologies as clients increasingly deploy low-cost
solutions from the IT or prosumer worlds, notes Peter White, director general
of the International Association of Broadcasting Manufacturers. "You can buy a very
capable kit for a fraction of what it cost five years ago," White explains.

Those challenges are further compounded by the tough
economic climate and growing fears that the Eurozone crisis will push other
territories into a recession. The IABM will be releasing data from new surveys
of the industry at IBC, but its current estimates call for global growth of
around 2% in 2012 and relatively "muted growth" in major territories for the
next few years, White says.

"Broadcasters in major markets are dealing with flat
technology budgets and are very cautious about how they spend their money,"
says Alain Andreoli, president and CEO of Grass Valley, which is owned by the
private equity firm Francisco Partners. "It is all about cost, price,
efficiency and building this multiplatform content delivery architecture."

That has encouraged Grass Valley, Avid, Ross Video and other
major vendors to develop larger integrated systems that can handle
multiplatform delivery in a much more automated fashion.

"There is a convergence of technology, with clients using
more technologies that are IP-based and a lot of common off-the-shelf IT
technologies," Avid's Greenfield says. "They can no longer have that wall
between the broadcast world and the Web world. It is really about how do you
bring all of those pieces together," with cloud-based solutions and other
technologies.

Media companies' growing demand for products to handle
multiplatform delivery has also helped fuel a wave of technology company
mergers and investments by private equity firms in the last three years,
involving such players as Grass Valley, Avid, Ross Video, Harmonic and Snell.
In the last six months alone, Belden announced it was acquiring Miranda
Technologies, Cisco snapped up NDS, and Harris unveiled plans to spin off its
broadcast division.

"The industry is ripe for consolidation," the IABM's White
says, noting that about 25% of the industry has been losing money during the
last two years. "You can add the skill sets you need through acquisitions, and
strengthen your ability to invest in R&D."

For example, over the last year Ross Video acquired several
companies to establish itself in the robotics and virtual-set space, while
Grass Valley acquired Dutch company PubliTronic to expand its channel-in-a-box
offering.

"You need companies that are very strong and stable
financially that can equip their customers for the long-term transformation
they are making," says Andreoli, who is eyeing further acquisitions as he
expects consolidation to produce several larger companies that will dominate
the industry.

A number of these deals are designed to help companies fill
out their product lines. Brightcove CMO Jeff Whatcott notes that the company
acquired Zencoder, a cloud-based video encoding service used by PBS, Scripps
Networks and more than 1,000 other organizations, as a way to expand
Brightcove's Video Cloud and App Cloud platform product lines. "We found that a
number of clients wanted a platform-as-a-service offering for developers, and
the acquisition allows us to offer that," he notes.

This also provides smaller companies with a larger parent to
help expand internationally and to cover hefty research and development costs.

But some prominent industry executives worry that the trend
toward larger players could actually slow down innovation. "NAB used to have a
lot of interesting small players doing some very cool technology and some
bright engineers that grew some great companies organically," Ross notes. "But
I think with the brand awareness that has become a dominant force in the way
broadcasters think and acquire equipment, some of the smaller players have been
hurt. And that has hurt some of the innovation and diversity that comes from
the smaller players."

Bosen also points out that acquisitions have caused some
customers to worry about the future of product lines backed by acquired
companies. "The deals have created some uncertainties that have been good for
Utah Scientific as a good old-fashioned stable company," he says.

Technical ties between big and small companies don't always have
to involve mergers. Ross stresses that Ross Video has created alliances with a
number of smaller companies to encourage innovation through tits Open Gear
platform.

"We now have 37 partners and we are seeing a lot of really
cool things coming out of a lot of these smaller Open Gear partners who
wouldn't be nearly as successful if they didn't have the ability to participate
in an industry standard like Open Gear," he explained.

While Ross Video continues to eye acquisitions, its CEO adds
that the company has little interest in being acquired. "I get phone calls
fairly regularly about private equity wanting to purchase Ross Video and I have
zero interest in that," he notes, in part because he feels it would distract the
company from its focus on customer service.

"Being an independent company, we are in a much better
position to make long-term decisions on what customers want and to do things
that are in the interest of the customer," Ross says. "If we were run by
accountants, we might have extended service plans and premium support for
people who want to call us in the evenings. So I really appreciate being able
to make more personal decisions about how we treat our customers and being able
to say that calling Ross for customer service is free."

It has also allowed Ross Video to triple the size of its
manufacturing facilities at its Canadian headquarters, a strategy the CEO
believes has helped it achieve efficiencies and a number of product
innovations. "Our manufacturing team is present at every design review and has
veto power if they feel that the product will not hit a quality standard," Ross
says. "If we built our products in China, I can't imagine maintaining that
quality."

Grass Valley's Andreoli stresses, however, that his
company's acquisition by private equity firm Francisco Partners has actually
strengthened its ability to pursue a long-term strategy. It also has enabled
Grass Valley to improve its ties to customers by reorganizing operations to
create a more "customer-focused" management structure.

While private equity companies traditionally had a three-to-five
year investment window before seeking to sell an asset, Andreoli notes that
changes in the financial market have lengthened the investment cycle, and
Francisco Partners has always taken a long-term view.

"Francisco Partners has always made investments for the long
term," he explains. "They still have investments they made in the 1990s in
their portfolio."

Other disagreements can be found surrounding the immediate
impact of information technology.

Avid's Greenfield, for example, downplays the potential
impact of competition from larger, traditional IT companies like Apple and
Adobe. "If this weren't such a great industry, we wouldn't be attracting other
players into the industry," he says. "I think it is good for the industry
because it is keeping us and other companies on our toes."

Greenfield and others also argue that their longstanding
focus on the broadcast industry gives them the expertise broadcasters want.

Andreoli notes that traditional IT companies have gone in
and out of the market over the years because they are focused on much larger
markets than broadcast. "They haven't shown the consistency in their commitment
and investment in the market, and broadcast customers are careful about
committing with them," he says. "Grass Valley has been in this market for over
50 years and has the in-depth knowledge of video technology and this industry
that our customers want and that no IT company has."

For the moment, technologies from traditional IT vendors are
also playing a relatively limited role in live broadcast, others argue. "When
you are looking at serving up files residing on hard drives, it makes sense to
be working in IP and an IT-based infrastructure," notes Ross. "But when we are
working in live product, I think it is a very different game. In live
production, uncompressed baseband is still alive and strong."

Bosen agrees but notes that uncertain economic conditions
are changing purchasing decisions. While Utah Scientific is having a record
year, much of that is being driven by large projects that have been in the
works for a year or two. "Going forward, I think there is a big question mark
about the state of the economies going into IBC," he says, making broadcasters
very cost-conscious.

"For the next five years, we have to keep in mind the
financial pressures on customers," Bosen adds. "They are tending to buy a
minimal piece of equipment rather than something that will last 15 or 20
years."

Those financial pressures, coupled with the need to find
low-cost, automated ways of distributing content to multiple platforms, will
require a much greater reliance on IT and cloud technologies, others argue.

"The shift to IT is a profound change that everyone ignores
at their peril," argues Chyron CTO Bill Hendler. "There is such tremendous
investment on IP networks and IT network and routing technologies that gives
them economies of scale that can't be matched by dedicated niche hardware."

To help companies make that move, Chyron will be announcing
some partnerships at IBC to help clients integrate their broadcast
infrastructure with IT equipment and will be demonstrating a number of cloud-based
solutions for streamlining multiplatform delivery.

These technologies also open up tremendous opportunities for
collaboration and centralization of workflows, both Hendler and Avid's
Greenfield note.

"By taking advantage of IT technologies, such as the cloud,
we were able to announce Interplay Sphere at NAB," a product that will help
stations and producers managed distributed productions, Greenfield says. It
will be released Sept. 8, and Avid will showcase it at IBC. E-mail comments togpwin@oregoncoast.com and follow him
on Twitter: @GeorgeWinslow